Summary of Statement No. 113

Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts (Issued 12/92)


This Statement specifies the accounting by insurance enterprises for the reinsuring (ceding) of insurance contracts. It amends FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises, to eliminate the practice by insurance enterprises of reporting assets and liabilities relating to reinsured contracts net of the effects of reinsurance. It requires reinsurance receivables (including amounts related to claims incurred but not reported and liabilities for future policy benefits) and prepaid reinsurance premiums to be reported as assets. Estimated reinsurance receivables are recognized in a manner consistent with the liabilities relating to the underlying reinsured contracts.

This Statement establishes the conditions required for a contract with a reinsurer to be accounted for as reinsurance and prescribes accounting and reporting standards for those contracts. The accounting standards depend on whether the contract is long duration or short duration and, if short duration, on whether the contract is prospective or retroactive. For all reinsurance transactions, immediate recognition of gains is precluded unless the ceding enterprise's liability to its policyholder is extinguished. Contracts that do not result in the reasonable possibility that the reinsurer may realize a significant loss from the insurance risk assumed generally do not meet the conditions for reinsurance accounting and are to be accounted for as deposits.

This Statement requires ceding enterprises to disclose the nature, purpose, and effect of reinsurance transactions, including the premium amounts associated with reinsurance assumed and ceded. It also requires disclosure of concentrations of credit risk associated with reinsurance receivables and prepaid reinsurance premiums under the provisions of FASB Statement No. 105, Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk.

This Statement applies to financial statements for fiscal years beginning after December 15, 1992, with earlier application encouraged.